Subscribe To

Tuesday, August 27, 2013

When the Going Gets Tough, Fund Manager William Ackman Loses $500 Million and Quits

How Did This Man Get $500
Million to Lose?

Men and women (well mostly men, sorry women most of you are too smart, too savvy
and have too much integrity to get into the fund management business) who
manage money get paid huge bucks, and all to often deliver sub par
performance. Such is the case of William
Ackman, whom this Forum has previously noted has been rebuked by the J. C.
Penney Board for trying to singlehandedly run ruin the company.

The
hedge fund manager William A. Ackman moved on Monday to sell his roughly 18
percent stake inJ.C. Penney, nearly two
weeks after he resigned from the board amid an unusual public battle with his
fellow directors.

Penney filed a
prospectuswith
regulators giving notice that Mr. Ackman’s firm, Pershing Square Capital
Management, planned to sell its 39.1 million shares. The company, which will
not receive any proceeds from the sale, did not list an expected selling price.

Gosh, how did he do
with the money entrusted to him to invest?
Not so well.

Shares in Penney closed at $13.35 on
Monday, valuing the stake at about $522 million. Pershing first began buying
stock in the retailer three years ago, becoming the biggest shareholder in the
process, and paid on average about $25 a share for its position. If sold around
Monday’s closing price, the hedge fund would face a potential loss of about
$456 million. (Mr. Ackman’s firm also faces more losses on derivatives it owns
that are tied to Penney’s stock.)

And how much good
did he do on the Penney Board? Not so
much.

By selling his stake, Mr. Ackman will
wash his hands of a drawn-out and ultimately disappointing investment in
Penney. He first emerged as a big investor three years ago, believing that the
retailer could be turned around with new management. To that end, he enlisted
Ron Johnson, the celebrated architect ofApple‘s
retail strategy.

But Mr. Johnson’s tenure proved to be
disastrous, with numerous initiatives — eliminating discount sales, a pricey
renovation of Penney’s stores — serving only to drive away existing customers
while failing to bring in new ones. Earlier this year, the board fired Mr.
Johnson and brought in his predecessor, Myron Ullman III, on an interim basis.

So let’s all join
with the rest of the Board members and the shareholders in J. C. Penney in
wishing Mr. Ackman a fond farewell, with the emphasis on the farewell.

William Ackman, the smartest man in the room, assuming the room is pre-kindergartner.